Pa rt On e Reaching
The three chapters in this section – wealthy, successful and educated – examine social narratives that we can’t seem to get enough of. Now, it should be obvious to anyone that the absence of any of these three can cause anxiety and misery. I will not suggest otherwise. The narratives suggest, however, that whatever our absolute levels of the positive attributes, we are expected to be reaching for more. The assumption is that ever more happiness is achieved with ever more money, more markers of success and greater intellectual validation. The trap comes from the fact that the happiness hit from adherence to these narratives gets ever smaller the further up the ladder you go and, eventually, can become reversed. To be happier we need to move from a culture of ‘more please’ to one of ‘just enough’. A just- enough approach has some similarities with the concept of ‘satisficing’, a rule for decision-making that involves searching the available options only until one of them meets an acceptable threshold. This is in contrast to ‘maximizing’, which is a standard assumption in economics. Maximizing involves searching until the very best option is identified by a process of elimination. The distinction was fi rst put forward by Herbert Simon in the 1950s and has been popularized in recent times by Barry Schwarz. To illustrate, a maximizer booking a holiday will spend hours – days even – sifting through the best deals online within budget. They will weigh up all the options, taking account of all critical factors such as price, location, room size, breakfast offering, recent reviews and so on, and will then proudly announce ‘I have found the best possible deal.’ A satisficer will hit ‘Reserve’ as soon as they come across the right sort of hotel within budget.
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The concept of just enough I have in mind here focuses directly on the happiness feedback provided by each decision. As such, it is less about accepting an option that is sub-optimal and more about fi nding an option that is optimal to you given its overall impact on your happiness and the happiness of those you care about. It is satisficing in the domains of wealth, success and education but it is maximizing of happiness.
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1 Wealthy
Before we get going with this narrative, here are two questions for you to answer. Make a note of your answers and we’ll come back to the questions at the end of Part One. Please read the following statements and indicate whether you would choose Life A or Life B for yourself : Life A: You are wealthy. You often feel miserable. Life B: You are not wealthy. You hardly ever feel miserable. Please read the following statements and indicate whether you would choose Life A or Life B for a friend : Life A: Your friend is wealthy. Your friend often feels miserable. Life B: Your friend is not wealthy. Your friend hardly ever feels miserable. It has been credited with making the world go round on the one hand, and being the root of all evil on the other. The truth is that money can be whatever we want it to be, depending on how we use and abuse it. Money allows us to organize and collaborate on the trade of goods and services on a global scale. If it disappeared tomorrow, the majority of societies around the world would crumble. Without money in our pockets and bank accounts, each of us would be in real danger of going without food and shelter. And yet money does not have inherent value in itself: it is only ever an instrument for satisfying our wants and desires, and for pursuing happiness. Getting richer is a pervasive goal. Governments around the world 3
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monitor the economic status of their populations through national surveys and with indicators such as gross domestic product (GDP), which is the monetary value of all goods and services produced by a country over a given period (it is usually calculated every three months). GDP is widely recognized as a very poor proxy for progress, however; all forms of economic activity add to growth, even the petrol you use in a traffic jam that only serves to pollute the planet and piss you off. Yet ‘economic growth has become a fetish . . . an altar on which we are prepared to sacrifice all.’1 Such is the power of the narrative to get rich. According to a 2008 Pew Research Center poll, over half of Americans say that ‘being wealthy’ is important to them. 2 An American Heartland Monitor poll from 2014 shows that half of Americans agree that being wealthy is a necessary component to living the good life.3 The Brits celebrate their riches too. For example, the Sunday Times Rich List has publicized the wealthiest people and families living in the UK each year for the last thirty years. Think of all the people you know who are motivated by earning more money, even those who earn quite a lot already. We don’t quite trust those who say that money doesn’t matter that much to them. There are, of course, social welfare considerations, too. The taxes on wealth and earnings can be used to address poverty, as well as to fund areas that the market might neglect, including healthcare and education. On the other hand, a focus on growth directs our efforts ever more towards the production and consumption of ‘stuff’ with questionable returns for anyone’s happiness. As noted by Joseph Stiglitz in his book The Price of Inequality, individuals such as Albert Einstein make enormous contributions to social welfare and yet are not adequately rewarded by the economic system, and so the narrative of being wealthy may push other possible Einsteins into money-making professions instead.4 The people at the top of the economic ladder, and who will feature consistently in the Sunday Times Rich List, are mostly those who have been lucky enough to exploit market forces, often with the added good fortune of inherited wealth, and often in ways that are not beneficial for society. Strictly speaking, ‘wealth’ refers to accumulated assets in the form of savings, investments and property. It is tricky to measure. In this book I will draw mainly on income-based evidence. Over time, 4
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income and wealth have been consistently correlated: people who earn higher wages tend to accumulate more assets. At any one point in time, however, they can differ quite markedly; many retired people have low incomes but high levels of wealth, and some younger people have good salaries but no assets. As you consider the evidence please keep in mind that wealth is generally a better indicator of who is rich than income, because it better reflects true purchasing power.5
R ic h e r . . . a n d h a ppi e r? What is the relationship between income and happiness? Well, if we use life satisfaction as our measure of happiness, then the association with income dwindles as income rises but – in most studies – never completely disappears.6 The relationship between income and life satisfaction is never that impressive, though, especially when compared to aspects of life such as having positive social relationships, and good physical and mental health.7 Study after study, however, has shown that poverty makes people miserable.8 To illustrate this, Kate Laffan, Alina Velias and I have been looking at the most miserable people in data gathered by the UK’s Office for National Statistics (ONS) from a cross-sectional sample of nearly 200,000 people each year since 2011. The ONS asks four happiness questions that Richard Layard, Rob Metcalfe and I proposed, each rated on a 0–10 scale from ‘not at all’ to ‘completely’: 1. Overall, how satisfied are you with your life nowadays? 2. Overall, to what extent do you feel the things you do in your life are worthwhile? 3. Overall, how happy did you feel yesterday? 4. Overall, how anxious did you feel yesterday? We might not all agree on the best question to measure happiness, but we probably would agree that a person who gives a score of four or less to each of the fi rst three questions and a score of six or more to the last question is probably not doing too well. About 1 per cent of the ONS sample are miserable, according to this criterion. This equates to between 1,700 and 2,000 people in each of the five 5
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years for which we have data (and would scale up to about half a million Britons). Earning less than £400 per week (or about £20,000 a year) is one of the factors that increases the chances of being in the most miserable 1 per cent. Above £400 per week, the law of diminishing marginal returns kicks in. Once your basic needs are satisfied, your desire for ever-increasing amounts of money generates everdecreasing returns of happiness. Snapshot responses to questions like these don’t really get at how people are feeling day to day. To help us explain the effect of income on experiences of happiness, Laura Kudrna analysed the American Time Use Survey (AT US). I will refer to these data frequently throughout the book. This study has been running for over a decade and allows analysts to estimate the amount of time that people spend engaged in activities of daily life. In 2012 and 2013, the 20,000 or so people in the AT US were asked to keep a diary of what they did over the course of a randomly chosen day, and then an interviewer called them the next day to ask some questions about the activities in their diary. Respondents rated the happiness, meaning, stress, tiredness, sadness and pain associated with each activity on a seven point (0– 6) scale. Take a look at the two graphs below, the fi rst for ‘happy’ by income group and the second for ‘meaning’ by income group. They are actually quite similar. Happiness goes up with increases in income at the lower end of the distribution, but then it falls with higher incomes. People who earn between $50K and $75K experience more pleasure and more purpose than any other income group. Contrary to what most of us might predict, those earning over $100K are no happier than those with incomes of less than $25K. And it’s worse for the rich folk when we look at purpose. Those with the highest incomes report the least purpose in their experiences. Perhaps ‘having it all’ makes what we do feel less meaningful. So what about misery (stress, tiredness, sadness and pain combined), which we might care about more? From the graph below we can see that there are no significant differences in misery after $50K, but people are more miserable at incomes lower than this. This is an important reminder that not having enough money is a source of misery. Based on all of the results – from happiness, purpose and 6
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Average pleasure out of 6
4.5
4.4
4.3
4.2
4.1
4 less than $25K $25K to less than $50K
$50K to less than $75K
$75K to less than $100K
$100K+
Figure 1: Happiness and income
4.5
Average purpose out of 6
4.4
4.3
4.2
4.1
4 less than $25K $25K to less than $50K
$50K to less than $75K
$75K to less than $100K
$100K+
Figure 2: Sense of purpose and income
misery – it would seem that it is best to have ‘just enough’ income in the US, around $50– 75K. At this point, people are protected from misery but they have not yet earned so much that they lose sight of purpose. 7
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Average misery out of 6
1.5 1.4 1.3 1.2 1.1 1 less than $25K $25K to less than $50K
$50K to less than $75K
$75K to less than $100K
$100K+
Figure 3: Unhappiness and income
These data consistently surprise people. While we cannot say anything about causality from correlational data, there is defi nitely something interesting, and perhaps not totally surprising, going on. The data suggest that being rich can lead to time and attention being directed towards activities that fuel the attainment of more wealth, such as longer working hours and longer commutes, and away from activities that generate more happiness, such as time outside and time with family and friends. This discrepancy between the big effect on happiness that we imagine increased wealth should bring and the small effect we experience goes a long way towards explaining the narrative trap of reaching for wealth. Across various studies, it emerges that around $75,000 (about £50,000 in the UK) is the point at which further increases in income do not lead to further reductions in misery. This would be at about the 90th centile of income in the UK (and at about the 80th centile in the US). So actually, for the vast majority of the population, earning more money should alleviate misery. This is an important point that is often overlooked by relatively wealthy academics and commentators who say that money doesn’t matter. It doesn’t matter to those with some to spare, but it matters a bloody lot to those struggling to pay their monthly bills.9 8
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But most people, including those on incomes above £50,000, truly believe misery would continue to fall with higher income above this point. And most people, irrespective of income, would continue to reach for more long after they have earned their fi fty grand. This is the addiction problem.
L ook i ng a rou n d The comparisons we make to other people can intensify the wealthy narrative trap. Imagine that you and I are colleagues and we earn the same salary. Imagine that you get a £200 a month pay rise. It feels good. Well, now imagine that you fi nd out that I got double that. Your pay rise doesn’t feel quite as good now, does it? In one sense, this is a bit odd because you can still use your extra money in ways that make you happier, and I have no great effect on your life or lifestyle. But in a seemingly more relevant sense, you don’t really know how to feel about your pay rise unless you have something or someone to compare it to. A great deal of the research on social comparisons in economics assumes that the people we compare ourselves to are people who are similar to us in some way, such as age or gender. Psychologists, however, have refi ned their theories more recently to show that we also make ‘upward’ and ‘downward’ comparisons with people who are better off or worse off than us according to some attribute, such as income (and that these people can also include our past selves).10 And when it comes to income, most of our comparisons are upwards, to people who earn more than us. In looking up, the higher the income of those near to us geographically, the worse we think our lives are going. This has been shown in a number of countries, including the UK and the US.11 There are exceptions, where no effect is found, though.12 And other people’s income is sometimes positively associated with life satisfaction, e.g. in some of the poorest parts of the world such as areas of rural China and small Latin American cities.13 Resource-sharing within groups may account for some of these effects, but the biggest reason is likely to come simply from the expectation that you are next up to get rich. 9
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When comparing ourselves to others, particularly in tight-knit or homogeneous communities, we see ourselves in them. This belief allows us to feel as if we have some control over our fi nancial destinies. If we believe we have the ability to rise up the ladder, we’ll feel better seeing what we believe we will someday become. The importance of perception here is supported by other work which shows that how happy people feel is most affected by their perception of where they sit among various reference groups, rather than where they actually sit.14 For example, one study has used a person’s absolute income as compared with the average income of that person’s neighbours to predict life satisfaction.15 You’ve guessed it – we are happier when our neighbours earn less. People’s perceptions of their position in wealth and income distributions are often inaccurate. Those who have a little tend to overestimate their position, and people who have a lot tend to underestimate it. There is a general tendency to under-report wages in survey questionnaires, though. And this is further affected by how satisfied people are with their wages. Using a sample of workers from France, researchers compared how much employers said that the employees earned each month with how much the employees themselves said that they earned. Those who were less satisfied with their wages (the majority of people) tended to under-report the figure, but those who were more satisfied with their wages tended to over-report them.16 One of the difficulties in studies looking for the effects of other people’s income on our own happiness is defining the ‘reference group’; that is, the people we compare ourselves to. In Laura Kudrna’s Ph.D. work using ATUS (and another sample of adults over fifty years of age in England) she tested over three hundred different ways of measuring the ‘reference group’, and her results suggest that studies finding no effect of relative status on happiness have most often used reference groups that are psychologically further away from us. The reference groups that mattered most consistently for happiness were others of a similar age in our area. When the groups to which people are assumed to compare themselves were defined only as those living in the same area, there was never an association with happiness, suggesting that people need to identify with their neighbours in some other way in order for social comparisons to matter for their 10
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happiness. Speaking personally, I am much more affected by what other professors at the LSE earn than I am by the average income of other people living in Hove. Debt is a clear cause of stress and misery, and we can get ourselves into trouble by trying to keep up with those around us. In Canada, the government runs a very popular lottery. Research has shown that in the two years after a lottery win, the neighbours of those who win larger amounts are more likely to fi le for bankruptcy. Specifically, a 1 per cent increase in the size of the lottery win is associated with a 0.04 per cent increase in bankruptcies. Part of the explanation for this is that neighbours of lottery winners spend more of their income on visible goods such as cars and motorcycles in order to keep up.17 In Switzerland, researchers linked data on income satisfaction and life satisfaction from the Swiss Household Panel with regional information from the Federal Roads Office detailing the number of Porsche and Ferrari registrations per thousand of the population.18 They found that the more Porsches and Ferraris there are in a neighbourhood, the less satisfied people in those neighbourhoods are with their salaries. There was also an effect on life satisfaction more generally, though it was smaller. Envy can have a distorting effect, particularly when it comes to money. This has been demonstrated by a series of novel experiments conducted recently in the US.19 In one experiment, participants were asked to take an envious or a neutral perspective when thinking of a person similar to them but different in one important regard, for example exceptionally wealthy. Participants were then asked to estimate the everyday ups and downs that person might experience in response to structured questions (e.g. if you were this person ‘how frequent would little problems be for you, compared to you now?’). When an envious perspective was adopted, the everyday ‘ups’ dominated the ‘downs’ much more than when a neutral perspective was adopted; i.e. people thought of the wealthy as happier when they were in an envious frame of mind. A follow-up experiment showed that predictions about the everyday lives of those envied for their wealth were much better than those people actually experienced. So if you find yourself envying others with more money than you, think instead of their painful commutes, their screaming children and their enormous tax bills. 11
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Getting richer does not necessarily bring more happiness, partly because we upwardly adjust the people we compare ourselves to. Looking up to those richer than us could serve to motivate us and give us hope, but most of the time it just annoys and discourages us and we are less happy with our lot, particularly if we start from a position of envy. But what if we thought of ourselves as part of the wider world? Let me assume that you are a Brit, you’re single, and you take home no less than two grand a month after tax. For every thirty-three people on this planet, you are richer than thirty-two of them. Whatever your own circumstances, I bet if you faced the certainty of emerging into the world with your current assets or taking the chance of being in the fi nancial position of any one of the other seven billion or so people on the planet you would bite my hand off to keep what you have. It might be quite good to remind yourself of that once in a while.
I f you ’ v e g o t i t, f l au n t i t People aspire to being rich for a whole host of reasons. One of the most prevalent is to spend money in a way that allows others to recognize your wealth. The need for recognition has been a key driver of the wealthy narrative trap for ever. We have always wanted to impress others, but this particular tendency began to really flourish in the mid-nineteenth century, around the time of the second Industrial Revolution. A whole new class of previously poor people started accumulating capital (the nouveau riche). With the arrival of wealth came the need to demonstrate their newfound status. When we spend our money demonstrably, we are engaging in ‘conspicuous’ or ‘positional’ consumption: consuming goods and services that demonstrate your status to other people. 20 There are three key elements to status-seeking consumption. First, the goods must be limited in supply: if everyone could get the same pair of Valentino trainers, it would be much harder for you to show off your uniquely enviable position as their owner. Second, the consumption must be visible: if no one notices your trainers, because they have a discreet or forgettable design, others couldn’t possibly know you were 12
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rich. Visibility can refer to physical visibility to other people and/or to social visibility, where our status is expressed in social cues. Going on holiday somewhere luxurious, for instance, is somewhat physically visible through a tan, but it is mostly socially visible. (I’m sure you have experienced a friend or colleague boring you to tears with stories of their adventure holiday, or endless photos of waterfalls and beaches.) The third element of status-seeking consumption is that there is a weak association between price and quality. If price goes up and quality remains unchanged and people still buy the article, they are buying it purely for the status it affords them. This is a fantastic marketing ploy that nearly all of us status-seeking humans seem to fall for; the relationship between price and quality is a lot weaker for lipsticks than it is for facial cleansers, for example. There are many studies showing that status-seeking consumption improves life satisfaction. 21 In Russia, for example, the more people spend on clothing (a visible item) relative to the people they compare themselves to and interact with, the more satisfied they are.22 A smaller number of studies, however, do show the opposite. In India, higher household levels of consumption on items such as jewellery, mobile phones, recreation and dowries are associated with lower life satisfaction. 23 One explanation for these results is a treadmill effect. People consume to keep up with others, but this encourages other people to consume more too. So, in a positional sense, everyone is spending more but standing still. (This is similar to the effect of having Porsches and Ferraris around your neighbourhood.) Interestingly, the more inequality exists in a community, the more we show off our own status. One study by Lukasz Walasek and Gordon Brown fi rst ranked US states according to the levels of income inequality within states and then looked at the most popular Google searches in those states. 24 They then presented sixty members of the public with the following statement: Some things that people are interested in, or like to buy or fi nd information about, are things that show how rich or successful they are compared to other people. These are sometimes called ‘positional goods’ or ‘status goods’. Someone who buys such goods may be particularly concerned to demonstrate their social status.
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The participants were then asked to judge whether the popular search terms fitted this defi nition. The results showed that, in more unequal states 70 per cent of the forty words used most frequently were related to status goods, such as ‘Ralph Lauren’, ‘fur vests’ and ‘champagne punch’. In more equal states, none of the popular searches were related to status goods; instead the searches related to non-positional goods, e.g. ‘chicken bake’ and ‘chick fl ick movies’. We also see a difference in the extent to which different people on different rungs of the status ladder make their status visible. 25 As people climb the ladder, they may want their status to be recognized across the social strata, choosing status markers that are easily recognized by all (e.g. having a tan or a Hermès handbag). For social climbers, status visibility is essential. The purchasing behaviour of those already at the top tends to be different; they are more concerned with being noticed by others at the top, often in more subtle ways. A Birkin handbag, for example, is one of the world’s most expensive handbags, and it has inconspicuous features recognizable only by a fashion-savvy elite.
H i t t i ng t h e roof Let’s turn to an item that most people will spend the most on – their house – and see how relative effects and showing off play a big part in this decision. This is not to say that owning your own home and/ or living in a bigger place will make you less happy (the evidence on this is thin and mixed) but, much like the other things that we reach for such as the designer bag, at some point keeping up with the Joneses becomes fi nancially untenable. Housing tenure and type is another nice example of a good that allows you to show off, both in terms of whether you own or rent and, more obviously, the kind of place and area you live in. Home ownership can be a desire with absolute value (you benefit from owning your own home irrespective of any comparisons you make to other people), but it also allows you to signal that you have ‘arrived’, or at least are in the process of ‘making it’. It is a good that has relative (positional) benefits as well as absolute value. 14
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It is now taken for granted in both the UK and US that a mortgage is better than a rental contract and it is something that the majority of people reach for. The British Social Attitudes Survey in 2010 found that, given the choice to rent their accommodation or buy, 86 per cent of participants expressed a desire to buy.26 The figure was 87 per cent in 1999, so the housing market crash in 2008 hasn’t made much of a dent in these desires. An American Heartland Monitor poll from 2014 shows that 56 per cent of Americans see home ownership as a very necessary component for living a good life, 27 although this figure is slightly lower among millennials (53 per cent). It is not surprising, then, that the norms and status associated with home ownership influence people’s decisions to take the plunge and to buy their own home. A recent study in the UK found that the greater the importance an individual’s peer group placed on home ownership, the greater the effect on that individual’s life satisfaction from getting a mortgage compared to renting. 28 The same study also showed that increases in home ownership among an individual’s peer group led to decreases in life satisfaction for that individual. If your friends buy their own homes it dilutes the extent to which you stand out by buying yours. One of the aspirational Hove mums that my wife, Les, knows asked her when we would be moving to a bigger house in a more ‘desirable’ area. She naively assumed that having a best-selling book and a minor T V career meant that I was raking it in. (Note to readers: this simply is not true. Note to publishers and TV companies: it ought to be true.) Our family of four lives in a five-bedroom house. Each of us has our own room and the kids have a playroom for fuck’s sake. So why would we need a bigger house? Only to show off, which a lot of arseholes in Hove enjoy doing. (Did I mention the playroom . . .?) If the benefits we derive from a good depend on what other people think about it, then its value is highly sensitive to shifts in narratives about what’s important. Home ownership in the UK, for instance, was less than 50 per cent when I was born in 1968. Everyone I grew up with lived in social housing. There was no discernible desire to own a property among anyone I knew. This all changed in the 1980s with Margaret Thatcher’s popular pledge of a ‘property-owning democracy’ made possible through the Right-to-Buy scheme. The 15